Inventory control systems track physical stock levels and balances. Key objectives include meeting demand while controlling costs like storage, space, and product availability. Data collection also provides opportunities. Other goals are keeping inventory at sufficiently high levels for smooth operations while minimizing investment, ensuring continuous supply and meeting customer demand, and reducing costs. Types of inventories include periodic/physical and perpetual. Important terms are par stock, reorder point, and reorder quantity. Effective inventory management balances minimum and maximum stock levels, safety stock, lead times, and pricing methods like average, weighted average, LIFO, FIFO, and standard costs. ABC analysis categorizes items by usage volume and value to prioritize control efforts.

1. Inventory control
"A system of records maintained by the
controlling department, which reflects
the physical movement of stocks and
their current balances."

2. objectives
1. Meet demand
2. Control costs
• Storage cost
• Warehouse space
• Product turnover
• Product availability and transit time from the
vendor
3. Identify opportunities- the data collection
provides valuable information

3. Other objectives
1. To keep inventory at sufficiently high level to
perform production and sales activities smoothly.
2. To minimize investment in inventory at minimum
level to maximize profitability.
3. To ensure that the supply of raw material &
finished goods will remain continuous so that
production process is not halted and demands of
customers are duly met.
4. To minimize carrying cost of inventory.

4. 5. To keep investment in inventory at optimum
level.
6. To reduce the losses of theft, obsolescence &
wastage etc.
7. To make arrangement for sale of slow moving
items.
8. To minimize inventory ordering costs.

5. Types of inventories
• Periodic or physical
• Perpetual inventory
Par stock- is the maximum quantity that may be on hand
at any given time.
Reorder point -is the number of units to which inventory
should decrease before an order is placed
Reorder quantity- is the amount that should be ordered
each time an order is placed.
Par stock – reorder point + the number of units
consumed between order date and delivery date.

6. Date……………………..
PHYSICAL INVENTORY FORM
S.no. Quantity in hand Unit size Food item Description Unit cost Total inventory value
Taken by………………………………. carry forward inventory…………………………….

8. Importance of inventory
• Element of surprise
• Easy detection of errors
• Better control over stores
• No interruptions of production process
• Acts as internal check
• Investment in material kept under control
• Accurate and up to date accounting records
• Availability of correct data

9. Elements of inventory control
Minimum stock level
• It is the level below which the inventory level is not allowed to fall.
• If the level of inventory is below this level, there are chances that plant
operations are adversely affected.
• As soon as the stock level reaches the minimum level for any reason:
• The matter is to be reported to the higher management immediately
• Extra efforts are made or additional resources are deployed to ensure that
the material is received at the earliest.
• What is done?
– The item could be received by faster mode of transport say by air or by courier
service in place of sea or rail or is purchased from any other source even at a
higher cost.
• Minimum level is an indication of the danger and provides alert for stock
out situation.

10. Maximum stock level
• It is the inventory level, beyond which the stock level is not allowed to
exceed.
• The maximum level is used as a control point to avoid any extra stocks.
• Order quantity for material is controlled in such a way that when the
material is received the inventory level is below the maximum level.
• However, at times the maximum level is crossed:
• To avail benefits of attractive discounts,
• Saving on the transportation/freight charges,
• Due to strategic buying decision.
• The maximum level if crossed with prior evaluation of overall benefits is a
correct approach.
• If it crossed due to lack of control, the matter should be viewed seriously.

11. SAFETY STOCK
• Safety stock is the level of inventory which is to be maintained always to take care of unforeseen
factors such as:
• Delay in ordering,
• Delay in supply by supplier,
• Delay in transportation
• Hindrances' in execution of orders by the supplier, which may be beyond his control like war, flood
or strike.
• A very high degree of safety would need high level of inventory,
• A low degree of safety would require low inventory stock.
• Safety stock follows the path of ‘S’curve.
• Higher level of inventory is to be maintained for high level of safety and blocking of financial
resources:
• The safety level is decided depending on:
• The criticality of the stoppage of operations,
• Reliability of source of supply,
• Location of supplier
• Number of sources of supply.

12. Reorder point
• Reorder point is important tool for controlling inventory and to ensure
that there is no stock out.
• Reorder point is dependent on lead time.
• It is set in such a manner that if order is placed at reorder point, the
material is received by the time the inventory level reaches minimum
stock level.
• Reorder point shifts with the change in rate of consumption and is set
based on average yearly consumption.
• The lead time if changes, the reorder point should be adjusted.
• In practice, the reorder point is established quite correctly based on:
• Past experience,
• Rate of consumption
• Lead time.
• Reorder point is normally calculated by computer automatically.

13. • Lead time- it is the interval between the time
a requisition is initiated and the product is
received. The shortest lead time occur when
the material is purchased from a local supplier
• Minimax method- minimum stock level and
maximum stock levels combindly known as
MINIMAX methos

14. Pricing of Commodities:
• Perishables :
Almost all perishable commodities directly go to the kitchen and are
priced at actual purchase price. The perishables which first go to
the stores and then issued daily basis to the kitchens against
requisitions then are prices differently. The biggest problem of
calculating cost is of meat and meat products. The animal carcass is
issued to butcher against requisition. Butchery makes the
appropriate portion sizes for different menu items as per the
kitchens requirements. The butchery transfers the food to kitchens
against transfer notes. The food items mentioned on the transfer
notes and transferred from butchery and priced. While calculating
the price of meat products the butchery keeps in mind the wastage
and the actual yield is priced for control and costing purpose

15. Non- perishable:
• In case of non-perishable items there are several different methods to price the
items/commodities. But only one of the methods is adopted to price the
commodities.
The different prices are-
• Average Price:
In case the price of an item fluctuates very frequently and every time it is purchased
the price may be different then the price paid, may be a day before. These items
when issued to departments against requisitions are charged while calculating the
average price paid for the item. This ensures more stability in the issue price of the
commodities and hence does not affect adversely on the food cost.
• Weighted Average Price:
The weighted average of the items is calculated to have more stability in issue price as
compare to Average Price. For example if 100 packets of mushrooms are
purchased at the price of Rs. 8 per packet and 400 packets mushrooms are
purchased at the price of Rs. 7. Then the Weighted Average Price will be 100 X 8 +
400 X 7 divided by 500= Rs. 7.20 per packet.

16. • LIFO: last in first out
When the market fluctuates very frequently and the management
wants to charge the latest price of the commodity even when the
goods received first are issued first (FIFO). But in case latest price is
less than the first price then the price paid for the commodities is
charged to department issued stores.
• FIFO: first in first out
This means the goods purchased first will be issued first and also the
same price will be charged while issuing stores.
• Standard price:
Irrespective of the price paid for procuring the commodities but the
price charged is fixed by the management. Usually the management
fixes the price of a commodity for a certain period say three to six
months and the same price is charged to departments while issuing
commodities against requisition. This helps in maintaining the food
cost irrespective of the market price.

17. Actual purchase price method
Most accurate
Assuming that 20 cans remain in inventory, the
value would be
4@ rs.10= Rs. 40
12@ rs.9=Rs. 108
4@ rs. 12 = Rs. 48
20 rs. 196

18. Latest purchase price method
• Widely used approach
• Cost of replacement at the present moment
would likely to be the latest price at which the
items were purchased
• Latest purchase price = Rs. 10/unit
– 20 @ Rs. 10 = Rs. 200/-

19. ABC analysis
• A class
• B class
• C class

20. Hope
you learned something………
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